Reserve Diversification

The South African Reserve Bank plans to start diversifying its foreign currency reserves by adding Korean Won, Australian dollars, and New Zealand dollars. The Bank stated that it “is acutely aware of the risks facing the global environment emanating from asset tapering, and with this in mind, made a strategic decision to diversify its currency exposure to help insulate reserves from the potential rise in U.S. Treasury yields.” If several central banks follow the same path to sell USD and purchase reserves in other currencies, this will put pressure on the USD and on long term rates.

Today's Events • The JPY is trading stronger after BOJ Governor Kuroda said the country’s economy is recovering moderately and the efforts to stem deflation are succeeding. • The Institute for Supply Management’s non-manufacturing U.S. index increased from 54.4 to 55.4 in October, beating expectations. The index covers a range of service related industries that account for 90% of the U.S. economy. • As expected, the Reserve Bank of Australia left rates unchanged at 2.50%. The country’s business confidence is currently at the highest level in 3 ½ years. • The U.K. services PMI index grew at the fastest pace in 16 years in October, in stark contrast to the Eurozone which is struggling to recover from a debt crisis. The U.K.’s strong figures will likely prompt GDP growth to be revised higher. • China Premier Li Keqiang said China needs to maintain a 7.2% growth rate in order to keep the country’s unemployment rate stable. Growth at that pace would create 10 million jobs a year and keep unemployment at 4%.

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The South African Reserve Bank plans to start diversifying its foreign currency reserves by adding Korean Won, Australian dollars, and New Zealand dollars. The Bank stated that it “is acutely aware of the risks facing the global environment emanating from asset tapering, and with this in mind, made a strategic decision to diversify its currency exposure to help insulate reserves from the potential rise in U.S. Treasury yields.” If several central banks follow the same path to sell USD and purchase reserves in other currencies, this will put pressure on the USD and on long term rates.

Today's Events • The JPY is trading stronger after BOJ Governor Kuroda said the country’s economy is recovering moderately and the efforts to stem deflation are succeeding. • The Institute for Supply Management’s non-manufacturing U.S. index increased from 54.4 to 55.4 in October, beating expectations. The index covers a range of service related industries that account for 90% of the U.S. economy. • As expected, the Reserve Bank of Australia left rates unchanged at 2.50%. The country’s business confidence is currently at the highest level in 3 ½ years. • The U.K. services...Read More